Small Bank’s Big Digital Goal: Launch 3 Niche Banks

The below article was originally published October 1, 2019 in American Banker by Will Hernandez.

While several banks are experimenting with digital-only brands in the hopes of broadening their deposit footprint, $122 million-asset Surety Bank is planning to launch three, each aimed at a different niche market.

The DeLand, Fla.-based bank introduced its first this summer, a digital-only institution aimed at college students and young graduates called “booyah.” The bank sees it as a way to target a specific audience outside the central Florida area and boost deposits in order to ward off competitive threats from fintechs.

It already has two other similar efforts in the works.

“We’re looking to launch two more banks in 2020,” said Surety Bank CEO Ryan James. “We’re currently working with former and professional athletes on creating a digital bank to support professional athletes and fans.”

The bank’s efforts speak to the continuing challenges facing traditional financial institutions, which have watched as fintechs have steadily made inroads among customers. It is a particular challenge for smaller banks and credit unions, many of which are reluctant to branch out with a digital-only offering because of compliance and resource concerns.

Other small banks have created their own online-only offerings — $231 million-asset TransPecos Banks in Texas last year launched a digital brand, BankMD, for medical professionals — but it remains relatively rare.

Surety’s moves stem from a partnership with alternative core provider NYMBUS to update its own legacy system, which enabled James and his team to move forward with the digital bank. (NYMBUS also helped set up TransPecos Banks’ digital brand.)

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James argued that Surety’s small size was an advantage, allowing it to focus on a new product that might have taken a larger institution months to launch. “And our technology is just as good, if not better in many cases, as the big banks,” he said.

Booyah offers consumers much of the same features as today’s most popular challenger banks: no overdraft or monthly maintenance fees, no minimum balance and early direct deposit. The bank said its ideal target market for the brand is 20- to 40-year-olds earning $50,000 in their first or second job out of college.

James said one of digital bank’s key differentiators at the moment is a referral program that continues to reward the original account holder if their friends also make referrals that become active accounts. A booyah customer receives $25 for what is labeled a tier 1 referral when that first friend or family member opens an account and continuously meets the criteria for an active account.

A referral’s account must either have a direct deposit of at least $1,000; an average daily balance of $1,000; or $1,000 in general deposits. If that first referral recommends booyah to another friend, the original account holder receives $10, a tier 2 reward, for another active user.

The original account holder can continue to earn referral rewards at different tiers so long as the new accounts remain active and meet the requirements.

“We are taking the traditional bank marketing customer acquisition costs and putting it in the hands of clients,” James said. “This is something the client can be proud of to share with their friends, coworkers and family.”

As a result of the referral program, James anticipates booyah’s initial acquisition costs will decrease the longer the digital bank operates.

“We’ll have a large cost up front for awareness,” he added. “As awareness grows, your customer acquisition costs go down as opposed to doing traditional advertising.”

Booyah states on its website the bank is able to afford to pay the referral bonuses because it does not use its profit to advertise with Google and Facebook.

James declined to give specifics about booyah’s early customer count, but he said it is test marketing in different areas, including cities like Miami or Orlando, as well as rural parts of Florida.

“You can have large customer adoption in a rural setting because consumers there are used to running everything off their cell phone,” he said.

David Mitchell, president of NYMBUS, helped Surety shape its target market.

“Surety’s asset is their charter,” Mitchell said. “They can monetize that. And how you do that is looking to expand outside your brick-and-mortar footprint without opening up branches that nobody is walking into.”

Though booyah is an unusual name, Ryan said it stands out.

“It’s an exciting term, and we decided to attach a lot of different colors to it. Let’s make it fun,” he said.